1 March 2009

You wouldn't expect any less from the ALP. Federal Treasurer Wayne Swan just proposed that executives should have their salaries capped because Pacific Brands gave its executives pay rises after laying off workers in their Australian operations. Take a wild guess what will happen. That's right—these talented workers will just take better offers from overseas. For those that don't move offshore, local companies will just provide generous perks such as luxury cars or private jets in their employment packages. It is pure fantasy to expect that executives will apply their full potential in companies that don't attempt circumvent such regulation.

One might argue that companies will be able to hire more workers using the money that would have otherwise went into executives' pay packets—this is not necessarily so. The CEO will have less incentive to make the company competitive in the marketplace and sales could very well fall. Don't expect consumers to embrace slogans such as "Buy Aussie made"—they are unlikely to take any notice, especially when they have a mortgage to pay and family to feed.

US President Barack Obama recently introduced a cap on executive pay, but he wasn't so stupid as to apply it across the board—it is merely a condition that has to be accepted by companies receiving corporate welfare from the US government. Barack Obama said:

We don't disparage wealth. We don't begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset — and rightfully so — are executives being rewarded for failure, especially when those rewards are subsidised by U.S. taxpayers.